Juneau Superior Court Judge Phillip Pallenberg has rejected an effort to put a temporary halt to the state’s effort to expand the Alaska CARES Program, a federally funded state-run small business relief program that has been plagued by problems since its inception.
The order is based on Pallenberg’s finding that the lawsuit, which was brought by Juneau resident Eric Forrer and attorney Joe Geldhof, was not likely to prevail and, thus, didn’t merit an injunction halting the expansion of the program at this time.
Pallenberg says he believes the Legislature intended to give the state flexibility in how to run the program and doesn’t see the proposed expansion as out of line.
“It seems clear that the purpose of HB 313 is to expeditiously distribute the federal CARES Act funds to Alaskan businesses and individuals who have suffered financial harm due to the COVID-19 public health emergency, in order to mitigate the financial impacts of the crisis,” he wrote. “Plaintiff has not pointed to any legislative purpose which is served by excluding from the program those businesses who received small prior amounts of federal funding under other programs. … In light of that conclusion, I cannot find that plaintiff has established a clear probability of success on the merits.”
Pallenberg also wrote that even if he believed the plaintiffs were likely to prevail, he sees far more harm in halting the state’s proposed expansion of the program.
“I would not grant a preliminary injunction in this case even if plaintiff had shown a probability of success on the merits. The current situation is too grave, and the needs of Alaskans too great in the present emergency, for the court to stand in the way of the distribution of these federal funds to those who need them,” he wrote.
Pallenberg heard oral arguments via teleconference on Thursday, where Geldhof argued that the Legislature should have a role in approving and vetting changes to the program. He said the “lawless” expansion of the program sets a dangerous precedent and could open the door to “not just mischief but perhaps corruption.”
The case hinges on the strict language the state drafted to create the program, which was ratified by the Alaska Legislature, that said businesses that had received any amount of money from federal relief programs cannot receive any state-funded grants. That’s resulted in many cases where businesses have been locked out of state grants up $100,000 for receiving as little as a $1,000 advance from the feds.
Though the language is clear that business may not apply for the state grants, the state has recently argued that raising the threshold from zero dollars to $5,000 is permissible because it’s within the spirit of the law. In testimony to the Legislature, the state said it settled on the figure because of some talk during committee meetings.
Geldhof called the approach preposterous.
“That is really setting up a standard where you might as well get the Ouija board out and decide you can do whatever you want based on Ouija board principles,” he said during his rebuttal on Thursday.
Geldhof had only sought to halt the expansion of the program, which is expected to get underway next week, while allowing the underlying program to continue unfettered.
“Forrer is not asking you to close completely this $290 million spigot,” he said. “Forrer’s asking you to leave the spigot set where it is. The water can drip out or flow out, but it cannot just go out without any standards.”
Geldhof told the Anchorage Daily News that he doesn’t intend to appeal the injunction to the Alaska Supreme Court and plans to see the normal legal process through.
Why it matters
That the state can move ahead with its plan to open the state-run grant program to businesses that have received less than $5,000 in federal aid isn’t likely to quell a growing litany of concerns raised about the program. According to information released this week by the U.S. Treasury on the federal paycheck protection program, only 922 of the 10,768 businesses that have received loans would fall under that threshold.
The administration had planned to distribute as much as $150 million to small businesses in the first month of the program but due to confusion and an extraordinarily slow approval time, the state had approved less than $7 million during that time frame. Several businesses have since testified that they’ve gone more than a month without any word from the state.
“They’re learning how to fly the plane while building it and while flying it,” said Rep. Ivy Spohnholz, the chair of the House Labor and Commerce committee that’s held several hearings on the program’s shortcomings. “They’re trying to do a lot very, very quickly and are struggling, but the problem is people’s livelihoods are on the line here. We need to find out how to solve this very quickly so Alaskan small businesses will survive.”
Businesses called for a slew of changes that would open the program up to commercial fishermen, local economic development groups and to completely lift the threshold for previous federal aid or at least allow businesses to split the difference with the state program. Business leaders have warned that without changes, the program is on track to leave as much as $200 million of the $290 million allocated for the program unspent.
Many of those changes would likely go well beyond what’s at stake here, requiring either the state to take even more dramatic steps in ignoring the framework it drafted.
While legislators like Spohnholz have said they support a return to Juneau if necessary, the Legislature has, as a whole, been reluctant to return to a special session. There’s been concern that issues like the PFD could play a significant role in a particularly contentious slate of Republican party primaries.